Has Manek lost his magic touch?

HIS outstanding performance in a fantasy fund competition captured the imagination of thousands of investors. He swept the board two years running, turning an imaginary £10m into £502m in 1995 and £57.5m in 1996 in a competition in The Sunday Times.

So when Jayesh Manek, a High Street chemist from Ruislip, west London, launched a real-life fund in December 1997, almost 30,000 investors piled in. The cult of Manek was born.

The reality is anything but alchemy. The wretched performance of the Manek Growth Fund since the dotcom bubble burst in 2000 has sparked unrest and anxiety among investors.

At its height in early 2000, with the fund heavily invested in booming technology stocks, it was worth £300m and its units, £1 at launch, peaked at just over £3.

Today, the fund has dwindled to £68m and more than 5,000 investors have quit. Units are now valued at about 64p.

Measured at the end of last month, the fund's price had fallen 33% compared with an 8% increase in the FTSE All-share index.

Manek's management, supported by only two in-house researchers, is now openly questioned. Investors complain that while they have seen the value of their money slide, Manek still draws a healthy management charge. Annual reports and accounts since the fund's launch show that he has taken nearly £11m.

Investors are also alarmed at his decisions. Last year, Manek sold shares held by the fund worth £112m. This crystallised losses of £7.7m.

Even worse, in 2002 he sold holdings worth £83.7m, in the process realising losses of £67m. In 2001, equivalent losses on portfolio sales were £28.7m.

Some investors are now calling for the manager's head. Leading the way is 41-year-old Julian Shersby, a local councillor and until recently employed by a financial data collection business.

In the early Nineties, Shersby worked as an analyst for the Unit Trust Association, now known as the Investment Management Association, so he knows the fund industry inside out.

Shersby, from Capel, Surrey, invested £2,000 in the fund in April 1998. His holding is now worth £1,174. He wants Manek out, or if Manek will not go, he wants to convene a unit-holder meeting to demand that a new manager be found.

Unit trust rules require the trustees to consider calling a special unit-holder meeting if the move is supported by 10% of investors in the fund by value.

Last month, Shersby wrote to Manek complaining about the performance of the trust, especially the fund's failure to match the stock market's recovery since March last year.

Over this period, the fund's price has risen by only 15% against a 38% increase in the FTSE All-share index and a 42% rise in the average British all-companies fund. Only one other comparable fund has performed worse.

Shersby's view is that Manek Growth, whose aim at launch was 'to consistently outperform the stock market and provide investors with long-term capital growth', is not delivering. It is underperforming in both bull and bear stock markets.

Shersby wrote: 'Since it is now well proven that you cannot manage this fund competently on behalf of investors and also that your previous success in the Sunday Times competition was clearly nothing more than a fluke, then surely the time has come for you to have some honour in the matter by resigning . . . If not, I think that I and other unitholders will be forced to call a meeting to demand that a new fund manager be found.'

Manek wrote back in three days, arguing that 'an aggressively managed fund like the Manek Growth Fund has the potential to outperform significantly in a rising market'.

He blamed its performance since the market's seven-year low last March on its 'more defensive investment strategy'. But he said this did 'not negate the potential for above average rewards in the medium to long term'.

David Smith, investment funds editor at fund scrutineer Citywire, backs Shersby's criticisms. He says Manek's performance has been the most volatile of 213 UK companies funds with five-year records.

Smith says that analysis of the past half dozen 12-month investment periods to May 31 shows that, except for the period that included the technology bubble, Manek Growth has been at or near the bottom of its sector.

Stanilas Yassukovich, former deputy chairman of the London Stock Exchange, is chairman of Manek Investment Management. Now living in France, Yassukovich meets Manek four or five times a year to discuss the fund. Last week, he told Financial Mail that he had every confidence in Manek.

'It was always a given that such a growth fund, heavily dependent on stock picking rather than market guessing, would be volatile,' he says. He concedes, however, that the fund had not been as aggressively managed as it could have been since the market bounce-back in March last year.

Manek told Financial Mail he would not quit. 'I am genuinely more confident in my ability as a result of six years of fund management experience,' he said. 'Investors need to look beyond today. I'm very optimistic and I urge investors to look at Manek Growth as a long-term investment.

'In a good year, I can make up the fund's under-performance. I'm an active fund manager and by definition my fund will be at the top or bottom of the performance tables.'

What top advisers think about Manek

• Anna Bowes, Chase de Vere, Bath: 'Manek's fund performance has been consistently shocking for a long time now, and if I were one of his investors I would want to see him replaced.'

• Patrick Connolly, John Scott & Partners, Marlow, Buckinghamshire: 'Manek is a one-man band with very little by way of resources to support him. Investors should never have gone into the fund, and if they are still in it, they should leave.'

• Stephen Marriott, Bestinvest Brokers, London: 'We first formally covered the Manek fund in October 2002. As such, we had a 45-minute conference call with Mr Manek in order to understand his investment approach. Following the meeting, we awarded the fund one star - a sell. We continue to rate the fund as a sell.'

• Ben Yearsely, Hargreaves Lansdown, Bristol: 'We did a small mailing to clients near the launch of the fund. However, for the past 12 to 18 months, we have had the fund on sell. There are far better fund managers running racier, stock-picking funds.'

How unhappy investors can fight back

IF you are an unhappy investor in Manek Growth and would like to support Julian Shersby's call for a special unit-holder meeting to discuss Jayesh Manek's role in the running of the fund, write to: 'I'm a Manek Investor, Get Me Out Of Here', Financial Mail, Room 356, 2 Derry Street, London W8 5TS. Give your fund customer reference number, the number of units you hold and your full address. Or e-mail details to editor@thisismoney.co.uk